what is depreciation?
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In accounting terms it is a non-cash expense. To use the example others have used, say a car. A company has to buy a new delivery vehicle every 5 years. It wouldn’t make sense to say they have a $20k expense once every 5 years. That would make their earning unnecessarily lumpy. What they do instead is when they purchase the car they account for the purchase as a $20k asset. Every year they take a $4k depreciation expense. So the entire purchase ends up being an expense. Just 1/5 every year instead of 100% 1 year and 0% the other 4.
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